The Crash of the Mexican Peso is hurting some US Businesses

The Crash of the Mexican Peso is hurting some US Businesses

by, David Frank, Economist

This year, one of the biggest financial stories surrounding the US presidential election was the Mexican peso which became the proxy of sentiment surrounding which candidate was in the lead. It was stronger when Hillary Clinton was in the lead and weaker when Donald Trump was in the lead. Now, there is President-elect Donald Trump.

Mexico’s peso became a gauge of Donald Trump’s prospects in the weeks leading up to the November 8 vote which saw his stunning victory. He has a protectionist platform which can and will adversely affect the Mexican economy. Since he won, the Mexican peso has crashed by about 13 percent.

Over the course of Trump’s campaign to win the White House, he zeroed in on US trade deals including the North Atlantic Free Trade Association (NAFTA) with Mexico and Canada. He argued it was hurting US companies and taking jobs out of the United States.

At the same time that the peso is weakening, it might not be good for US companies as well. This past Monday. The Dallas Federal Reserve released its latest assessment on business activity in Texas. This survey include comments from respondents. One of the respondents pointed a finger at the crashing Mexican peso that could be bad news for his company. “The recent devaluation of the peso will make our products much less competitive in Mexico and much of Latin America. We could see a double-digit decrease in exports to this region,” the respondent said.

As the US Dollar becomes more expensive against the Peso, then goods and services from the United States become more expensive for consumers in Mexico. This means they could buy less American products going forward. In short, a really weak peso against the Dollar is not great news for US companies with international exposure. Especially with a lot of exposure with the Mexican economy.

Last week, Meg Whitman, the chief executive officer with Hewlett Packard spoke to CNBC’s Squawk on the Street on Wednesday. While she did not focus on the Mexican peso she did make comments about the stronger US Dollar. She said that the “the currency headwinds are very real. Because when the dollar is strong, our goods are more expensive overseas. She also said that customers are buying less now and that means that We’ve got to get our cost structure in line.”

Over the last month or so, US firms have been releasing third quarter results. These results have not been terrible with many firms meeting or even beating expectations. However, many US companies with strong exposure to the international markets have reported they were changing outlooks to forward guidance. Profits, even now, were hurt by a stronger US Dollar, especially in emerging markets. If the Dollar continues to edge higher than future profits will be adversely affected as well.

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Australian Dollar at Risk for US Data and Trump

Australian Dollar at Risk for US Data and Trump
by, David Frank,

Economist Points to consider with this Australian Dollar Forex article:

• The Australian Dollar starts to gain steam as the financial markets digest the Trump Trade volatility.
• A strong news flow out of the United States this week should boost a Federal Reserve outlook and rekindle the Australian Dollar selloff.
• President-elect Donald Trump and his cabinet appointments remain a source of headline risk and volatility.

This week, we are getting ready to enter the last month of the year, December. This month ends to be a quiet trading period out of the twelve months. However, the markets are worked up thanks to United States President-elect Donald Trump and his talk of protectionism. There are also key events later this week with the non-farm payroll jobs report, an OPEC cartel meeting and the Bank of England (BOE) is releasing its stability report. Talk about a minefield as we enter December.

The Australian Dollar saw a shallow recovery last week. .This was expected as China released some supportive economic data. Remember the Aussie Dollar is the favorite Forex proxy of China’s economic health. This move higher, however, appeared to be a corrective mood swing after two weeks of aggressive selling. The selling came in the wake of the US Presidential election. The global financial markets, including the currency universe, have been speculating as to the policies of US President-elect Donald Trump. The markets are concerned that Trump will be inflationary, thanks to increased fiscal spending and tax cuts, which will see a steeper rate hike path by the Federal Reserve. Currently, the Reserve Bank of Australia (RBA) is taking a wait-and-see approach to monetary policy. This has caused a shift in yield spreads which is not supportive of a strong Australian Dollar.

A Slow News Week Keeps Focus on Macro-level Trends

This week will be one without any large Australian event risk. This means that Forex investors will be focusing on macro-level risks. This US economic news and data docket is very dense this week. On tap is the Federal Reserve’s favorite inflation gauge, the PCE inflator, revised third quarter (Q3) gross domestic product data, and the November non-farm payroll report (NFP) to close the week. The economic news flow out of the world’s largest economy has been improving since last October. If this continues, then market watchers and economists will start to consider that the US economy is running hotter than they previously thought.

There is also US political developments to consider. These will remain an important and key risk factor of volatility, not only this week but until the presidential inauguration in January. Trump’s cabinet is starting to take shape however, he has not filled in his key economic posts as of yet. Investors are very keen to see who will take up the reins of economic policy in his
administration. The markets are looking for key appointments to head the Department of Treasury and Commerce as well as the incoming Trade Representative. These appointments, if seen as positive, can rekindle the Trump Trade in the global financial markets. This will put some more upwards pressure on US Treasury yields, supporting the US Dollar and thus putting selling pressure on the Australian Dollar.

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The Crash of the Mexican Peso is hurting some US Businesses

The Crash of the Mexican Peso is hurting some US Businesses

by, David Frank, Economist

This year, one of the biggest financial stories surrounding the US presidential election was the Mexican peso which became the proxy of sentiment surrounding which candidate was in the lead. It was stronger when Hillary Clinton was in the lead and weaker when Donald Trump was in the lead. Now, there is President-elect Donald Trump.

Mexico’s peso became a gauge of Donald Trump’s prospects in the weeks leading up to the November 8 vote which saw his stunning victory. He has a protectionist platform which can and will adversely affect the Mexican economy. Since he won, the Mexican peso has crashed by about 13 percent.

Over the course of Trump’s campaign to win the White House, he zeroed in on US trade deals including the North Atlantic Free Trade Association (NAFTA) with Mexico and Canada. He argued it was hurting US companies and taking jobs out of the United States.

At the same time that the peso is weakening, it might not be good for US companies as well. This past Monday. The Dallas Federal Reserve released its latest assessment on business activity in Texas. This survey include comments from respondents. One of the respondents pointed a finger at the crashing Mexican peso that could be bad news for his company. “The recent devaluation of the peso will make our products much less competitive in Mexico and much of Latin America. We could see a double-digit decrease in exports to this region,” the respondent said.

As the US Dollar becomes more expensive against the Peso, then goods and services from the United States become more expensive for consumers in Mexico. This means they could buy less American products going forward. In short, a really weak peso against the Dollar is not great news for US companies with international exposure. Especially with a lot of exposure with the Mexican economy.

Last week, Meg Whitman, the chief executive officer with Hewlett Packard spoke to CNBC’s Squawk on the Street on Wednesday. While she did not focus on the Mexican peso she did make comments about the stronger US Dollar. She said that the “the currency headwinds are very real. Because when the dollar is strong, our goods are more expensive overseas. She also said that customers are buying less now and that means that We’ve got to get our cost structure in line.”

Over the last month or so, US firms have been releasing third quarter results. These results have not been terrible with many firms meeting or even beating expectations. However, many US companies with strong exposure to the international markets have reported they were changing outlooks to forward guidance. Profits, even now, were hurt by a stronger US Dollar, especially in emerging markets. If the Dollar continues to edge higher than future profits will be adversely affected as well.

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Australian Dollar at Risk for US Data and Trump

Australian Dollar at Risk for US Data and Trump
by, David Frank,

Economist Points to consider with this Australian Dollar Forex article:

• The Australian Dollar starts to gain steam as the financial markets digest the Trump Trade volatility.
• A strong news flow out of the United States this week should boost a Federal Reserve outlook and rekindle the Australian Dollar selloff.
• President-elect Donald Trump and his cabinet appointments remain a source of headline risk and volatility.

This week, we are getting ready to enter the last month of the year, December. This month ends to be a quiet trading period out of the twelve months. However, the markets are worked up thanks to United States President-elect Donald Trump and his talk of protectionism. There are also key events later this week with the non-farm payroll jobs report, an OPEC cartel meeting and the Bank of England (BOE) is releasing its stability report. Talk about a minefield as we enter December.

The Australian Dollar saw a shallow recovery last week. .This was expected as China released some supportive economic data. Remember the Aussie Dollar is the favorite Forex proxy of China’s economic health. This move higher, however, appeared to be a corrective mood swing after two weeks of aggressive selling. The selling came in the wake of the US Presidential election. The global financial markets, including the currency universe, have been speculating as to the policies of US President-elect Donald Trump. The markets are concerned that Trump will be inflationary, thanks to increased fiscal spending and tax cuts, which will see a steeper rate hike path by the Federal Reserve. Currently, the Reserve Bank of Australia (RBA) is taking a wait-and-see approach to monetary policy. This has caused a shift in yield spreads which is not supportive of a strong Australian Dollar.

A Slow News Week Keeps Focus on Macro-level Trends

This week will be one without any large Australian event risk. This means that Forex investors will be focusing on macro-level risks. This US economic news and data docket is very dense this week. On tap is the Federal Reserve’s favorite inflation gauge, the PCE inflator, revised third quarter (Q3) gross domestic product data, and the November non-farm payroll report (NFP) to close the week. The economic news flow out of the world’s largest economy has been improving since last October. If this continues, then market watchers and economists will start to consider that the US economy is running hotter than they previously thought.

There is also US political developments to consider. These will remain an important and key risk factor of volatility, not only this week but until the presidential inauguration in January. Trump’s cabinet is starting to take shape however, he has not filled in his key economic posts as of yet. Investors are very keen to see who will take up the reins of economic policy in his
administration. The markets are looking for key appointments to head the Department of Treasury and Commerce as well as the incoming Trade Representative. These appointments, if seen as positive, can rekindle the Trump Trade in the global financial markets. This will put some more upwards pressure on US Treasury yields, supporting the US Dollar and thus putting selling pressure on the Australian Dollar.

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Bullish University - Trade Binary with Results. Explained. By Ben Newman 23rd November 2016

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Bullish University - Trade Binary with Results. Explained. By Ben Newman 22nd November 2016

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India’s Rupee, oh What a Mess

India’s Rupee, oh What a Mess
by, David Frank, Economist

Since India’s government announced a stunning demonetarization of nearly 88 percent of their available cash, the Indian rupee has been under heavy selling pressure. This morning, the rupee has already fallen to a record low of 68.66 against the US Dollar. The rupee has not been helped by the enormous Dollar rally in progress over the last few weeks. There is a lot of worry over the country’s demonetization drive as well.

The central bank has repeatedly intervened to slow the local currency’s slide as the rupee hit a previous low at 68.85, a level not seen since August 2013 when the country was mired in the worst currency crisis in more than 20 years. The Reserve Bank of India (RBI) intervened this afternoon spending nearly $500 million in the morning but the rupee was not able to find any real traction higher. As of 8:30 GMT, the rupee was down 0.4 percent at 68.82.

The rupee has shed nearly three percent this month, its biggest selloff against the almighty Dollar since August 2015. It has, however, done better than other emerging market currencies since President-elect Donald Trump shocking won the US Presidential election two weeks ago.

The rupee is expected to remain under pressure with the RBI continuing to intervene to try and taper the volatility but they will do so without defending any specific level, for now. It is not easy to determine where the rupee will be near-term. For now, India will monitor the president-elect’s transition and entrance into the White House to gauge his policy so they can have some certainty.

History repeats itself for the Rupee

In 2013 pressure on the current account triggered a heavy selloff in the rupee but this time India is in a better position to fight outflows from investors who are attracted to the higher yielding US Dollar. There are expectations that President-elect Trump will initiate an expansionary fiscal policy with tax cuts to drive inflation higher which in turn will lead to higher interest rates which are now behind the rising yield in US Treasuries. This has attracted investors into the US Dollar.

Since the November 8 US election, foreign investors have sold a net $1.6 billion from equity markets and an enormous $2.02 billion in debt.

Even though foreign investors are pulling money out of the Indian capital markets, the country does have relatively strong economic growth which should give some support to their beleaguered currency. There are some worries that Prime Minister Narendra Modi’s shocking move to ditch higher-denominated banknotes would put a slight dent into their economic growth rate.

He announced this move, to end higher-denominated bank notes on the eve of US elections which led to a lot of frustration among Indians who had trouble in getting new banknotes. This could cause a temporary slowdown in consumer spending and demand for products. Both power India’s economic growth.

India is also see net outflows tied to redemption in a strong US Dollar totaling around $28 billion. This comes from Indians living abroad which helped to end the crisis from three years ago.

This rupee crisis is also a strong test of the leadership skills of current and new RBI Governor Urjit Patel. He was deputy to his predecessor Raghuram Rajan who helped steer the country out of the last currency crisis, nearly three years ago. Investors will looking to him for the same acumen and skill to right the ship today.

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India’s Rupee, oh What a Mess

India’s Rupee, oh What a Mess
by, David Frank, Economist

Since India’s government announced a stunning demonetarization of nearly 88 percent of their available cash, the Indian rupee has been under heavy selling pressure. This morning, the rupee has already fallen to a record low of 68.66 against the US Dollar. The rupee has not been helped by the enormous Dollar rally in progress over the last few weeks. There is a lot of worry over the country’s demonetization drive as well.

The central bank has repeatedly intervened to slow the local currency’s slide as the rupee hit a previous low at 68.85, a level not seen since August 2013 when the country was mired in the worst currency crisis in more than 20 years. The Reserve Bank of India (RBI) intervened this afternoon spending nearly $500 million in the morning but the rupee was not able to find any real traction higher. As of 8:30 GMT, the rupee was down 0.4 percent at 68.82.

The rupee has shed nearly three percent this month, its biggest selloff against the almighty Dollar since August 2015. It has, however, done better than other emerging market currencies since President-elect Donald Trump shocking won the US Presidential election two weeks ago.

The rupee is expected to remain under pressure with the RBI continuing to intervene to try and taper the volatility but they will do so without defending any specific level, for now. It is not easy to determine where the rupee will be near-term. For now, India will monitor the president-elect’s transition and entrance into the White House to gauge his policy so they can have some certainty.

History repeats itself for the Rupee

In 2013 pressure on the current account triggered a heavy selloff in the rupee but this time India is in a better position to fight outflows from investors who are attracted to the higher yielding US Dollar. There are expectations that President-elect Trump will initiate an expansionary fiscal policy with tax cuts to drive inflation higher which in turn will lead to higher interest rates which are now behind the rising yield in US Treasuries. This has attracted investors into the US Dollar.

Since the November 8 US election, foreign investors have sold a net $1.6 billion from equity markets and an enormous $2.02 billion in debt.

Even though foreign investors are pulling money out of the Indian capital markets, the country does have relatively strong economic growth which should give some support to their beleaguered currency. There are some worries that Prime Minister Narendra Modi’s shocking move to ditch higher-denominated banknotes would put a slight dent into their economic growth rate.

He announced this move, to end higher-denominated bank notes on the eve of US elections which led to a lot of frustration among Indians who had trouble in getting new banknotes. This could cause a temporary slowdown in consumer spending and demand for products. Both power India’s economic growth.

India is also see net outflows tied to redemption in a strong US Dollar totaling around $28 billion. This comes from Indians living abroad which helped to end the crisis from three years ago.

This rupee crisis is also a strong test of the leadership skills of current and new RBI Governor Urjit Patel. He was deputy to his predecessor Raghuram Rajan who helped steer the country out of the last currency crisis, nearly three years ago. Investors will looking to him for the same acumen and skill to right the ship today.

 

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The Australian Dollar Gains as Mood in China picks up

The Australian Dollar Gains as Mood in China picks up
by, David Frank, Economist

The Australian Dollar, the Forex market’s favorite liquid proxy to China was pretty steady this morning despite weak construction data from The Down Under and a modest pickup in China’s business sentiment.

Today’s business sentiment release, from US based consultant firm MNI, came in at 53.1 for the month of November. This is above the five month low of 52.2 set in October, last month. The weakness in this survey has been led by lower confidence in manufacturing companies. It still remains to be seen how a current US Dollar environment will affect China’s exporting companies who sell in US Dollar and convert to Chinese yuan. A stronger Dollar is better for their bottom line and profit margin.

MNI said that new orders and output both rose on the month thanks to a weaker yuan which boosted sentiment. The consulting firm expects business conditions to hold up as they noted that the component measuring production in China rose to a thirteen month high of 58.0 in the month of November.

The company also said that they expect an increase in activity levels to increase if not remain strong over the next quarter (three months). The MNI survey has existed since 2007 and provides investors with an early look into business and manufacturing sentiment in the world’s second largest economy.

The Australian Dollar Shrugs Data Off

The AUD/USD Forex market was unfazed by the MNI release and a weaker-than-expected construction data release in Australia. The bulls seems to keep the upper hand after wrestling with the bears over the last couple weeks thanks to the so called Trump trade weakened the Aussie Dollar. The Aussie Dollar was at 0.74236 after the data release and 0.7422 before the data crossed the wires.

The Aussie comeback was still in play even though some pretty sad official data came out in the construction sector. The value of construction work, in The Down Under, fell 4.9 percent in the third quarter (Q3). This was way worse than the expected 1.6 percent fall. He markets saw this number fall by 3.1 percent in the second quarter and expected it to moderate a bit.

The one bright spot in today’s construction data came from residential building which rose 6.3 percent quarter to quarter. This data is released by the Australian Bureau of Statistics. However, engineering and construction fell off a whopping 23.2 percent.

The Aussie Dollar has endured a volatile few weeks of sessions. It hit a five month low against the Dollar on Monday thanks to investors trading in the so called Trump affect into their Forex portfolios. Since then, the Australian Dollar has shown some strength as the global financial markets are digesting a post-US election volatility and coming to grips that a Trump presidency might not be as bad as originally feared. He still raises concerns with his protectionism and America first policy but the global markets are being buoyed by his fiscal spending plans. This is seeing an increase in materials (mining stocks) as well as local construction plays.

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The Australian Dollar Gains as Mood in China picks up

The Australian Dollar Gains as Mood in China picks up
by, David Frank, Economist

The Australian Dollar, the Forex market’s favorite liquid proxy to China was pretty steady this morning despite weak construction data from The Down Under and a modest pickup in China’s business sentiment.

Today’s business sentiment release, from US based consultant firm MNI, came in at 53.1 for the month of November. This is above the five month low of 52.2 set in October, last month. The weakness in this survey has been led by lower confidence in manufacturing companies. It still remains to be seen how a current US Dollar environment will affect China’s exporting companies who sell in US Dollar and convert to Chinese yuan. A stronger Dollar is better for their bottom line and profit margin.

MNI said that new orders and output both rose on the month thanks to a weaker yuan which boosted sentiment. The consulting firm expects business conditions to hold up as they noted that the component measuring production in China rose to a thirteen month high of 58.0 in the month of November.

The company also said that they expect an increase in activity levels to increase if not remain strong over the next quarter (three months). The MNI survey has existed since 2007 and provides investors with an early look into business and manufacturing sentiment in the world’s second largest economy.

The Australian Dollar Shrugs Data Off

The AUD/USD Forex market was unfazed by the MNI release and a weaker-than-expected construction data release in Australia. The bulls seems to keep the upper hand after wrestling with the bears over the last couple weeks thanks to the so called Trump trade weakened the Aussie Dollar. The Aussie Dollar was at 0.74236 after the data release and 0.7422 before the data crossed the wires.

The Aussie comeback was still in play even though some pretty sad official data came out in the construction sector. The value of construction work, in The Down Under, fell 4.9 percent in the third quarter (Q3). This was way worse than the expected 1.6 percent fall. He markets saw this number fall by 3.1 percent in the second quarter and expected it to moderate a bit.

The one bright spot in today’s construction data came from residential building which rose 6.3 percent quarter to quarter. This data is released by the Australian Bureau of Statistics. However, engineering and construction fell off a whopping 23.2 percent.

The Aussie Dollar has endured a volatile few weeks of sessions. It hit a five month low against the Dollar on Monday thanks to investors trading in the so called Trump affect into their Forex portfolios. Since then, the Australian Dollar has shown some strength as the global financial markets are digesting a post-US election volatility and coming to grips that a Trump presidency might not be as bad as originally feared. He still raises concerns with his protectionism and America first policy but the global markets are being buoyed by his fiscal spending plans. This is seeing an increase in materials (mining stocks) as well as local construction plays.

 

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Dollar is Stretched at a 13 Year High

Dollar is Stretched at a 13 Year High
by, David Frank, Economist

The US Dollar has been on one extraordinary rise over the past two or so weeks. This past Friday, the ICE’s Dollar Index saw its tenth day in a row of gains. This is its longest bullish run since 2013 and has not been this high in thirteen years. The Dollar won gains against its most liquid counterparts as well as the highest yielding emerging market currencies. This renewed strength looks unstoppable for now. However, these gains will not continue unchallenged. The almighty buck’s strength is being fueled more on the razing of everything else around it and less on its own outlook or expectations. There is a growing sense of leeriness in the speculative market which could, in turn, mean a tipping point leading to a liquidity drain and skepticism.

Historically speaking, the Thanksgiving Holiday and week leading into the holiday break sees a drain of liquidity in the US financial markets. Statistically speaking, the S&P 500 usually sees its best month of performance through November. This is taking into account thirty years of data. Whether this is luck of the draw or holiday cheer, this is the relative norm that investors have come to rely on this time of the year. This presumption I dangerous, for investors in both the capital and Dollar Forex markets. Any good trader should come into this week, and the upcoming holiday season, with the approach that this time is different so as to complete a well-rounded analysis of any trades rather than hoping for the same old routine. This year, in particular, screams for more caution.

The US election for President, saw a candidate who was not favored to win, actually beat the odds to become the next president of the United States. Donald Trump is the president elect and he beat Democrat Hillary Rodham Clinton, a financial market favorite due to her status quo marquee. This sent ripple effects through the financial world, as equities have been on a torrid advance, US Treasury yields have been advancing and the United States Dollar has soared, tracking yields higher.

From a purely speculative position, the Dollar currently aligns itself to speculative risk appetite rather than panic that would see a flight of capital towards a safe haven asset. We have also seen US equity benchmarks move back to record highs along with the local currency show us that there is a relationship in play. There is a regional preference either based on returns or growth that investors are seeing. We are seeing a charge following the US election that is promising higher returns. President elect Donald Trump has called for an economic policy rich on fiscal spending and tax cuts. This has given renewed hope for a Dollar stuck on a faded charge from a monetary policy stuck in neutral from the US Federal Reserve. While this fiscal spending, stimulus along with tax cuts, could force the US Fed to steepen their rate hike schedule, nothing is etched in stone and the Fed is still playing a wait and see game. It is likely, they will raise rates in December which will further support the Dollar.

The other side of Trump’s economic policy is protectionism. While this could stoke Dollar strength at first, this type of economic policy will only drag on the economy in other areas, leading to a crimp in growth which could lead to the steam being let out of this current rally in the almighty Buck.

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Dollar is Stretched at a 13 Year High

Dollar is Stretched at a 13 Year High
by, David Frank, Economist

The US Dollar has been on one extraordinary rise over the past two or so weeks. This past Friday, the ICE’s Dollar Index saw its tenth day in a row of gains. This is its longest bullish run since 2013 and has not been this high in thirteen years. The Dollar won gains against its most liquid counterparts as well as the highest yielding emerging market currencies. This renewed strength looks unstoppable for now. However, these gains will not continue unchallenged. The almighty buck’s strength is being fueled more on the razing of everything else around it and less on its own outlook or expectations. There is a growing sense of leeriness in the speculative market which could, in turn, mean a tipping point leading to a liquidity drain and skepticism.

Historically speaking, the Thanksgiving Holiday and week leading into the holiday break sees a drain of liquidity in the US financial markets. Statistically speaking, the S&P 500 usually sees its best month of performance through November. This is taking into account thirty years of data. Whether this is luck of the draw or holiday cheer, this is the relative norm that investors have come to rely on this time of the year. This presumption I dangerous, for investors in both the capital and Dollar Forex markets. Any good trader should come into this week, and the upcoming holiday season, with the approach that this time is different so as to complete a well-rounded analysis of any trades rather than hoping for the same old routine. This year, in particular, screams for more caution.

The US election for President, saw a candidate who was not favored to win, actually beat the odds to become the next president of the United States. Donald Trump is the president elect and he beat Democrat Hillary Rodham Clinton, a financial market favorite due to her status quo marquee. This sent ripple effects through the financial world, as equities have been on a torrid advance, US Treasury yields have been advancing and the United States Dollar has soared, tracking yields higher.

From a purely speculative position, the Dollar currently aligns itself to speculative risk appetite rather than panic that would see a flight of capital towards a safe haven asset. We have also seen US equity benchmarks move back to record highs along with the local currency show us that there is a relationship in play. There is a regional preference either based on returns or growth that investors are seeing. We are seeing a charge following the US election that is promising higher returns. President elect Donald Trump has called for an economic policy rich on fiscal spending and tax cuts. This has given renewed hope for a Dollar stuck on a faded charge from a monetary policy stuck in neutral from the US Federal Reserve. While this fiscal spending, stimulus along with tax cuts, could force the US Fed to steepen their rate hike schedule, nothing is etched in stone and the Fed is still playing a wait and see game. It is likely, they will raise rates in December which will further support the Dollar.

The other side of Trump’s economic policy is protectionism. While this could stoke Dollar strength at first, this type of economic policy will only drag on the economy in other areas, leading to a crimp in growth which could lead to the steam being let out of this current rally in the almighty Buck.

 

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UK Inflation Comes in Unexpectedly Lower

UK Inflation Comes in Unexpectedly Lower
by, David Frank, Economist

Points to consider in this Forex article:

• UK inflation eases to 0.9 percent in October. This is down from one percent in September and below the forecast.
• British Pound weakens against the US Dollar.

This morning, the United Kingdom released its headline inflation for the month of October. The consumer price index (CPI) came in at 0.9 percent. This is below the one percent reported in September. Analysts and economists expected an annual print of 1.1 percent. As a result, the British Pound moved lower, for the second day in a row, against the US Dollar as hopes for a rate cut from the Bank of England (BOE) are being kept alive. This will weaken the British Pound even further.

The official numbers, which include the reduction in the core rate of inflation came in a t 1.2 percent down from 1.5 percent and below the 1.4 percent increase predicted by economists. This came despite the recent decline in the value of the Sterling Pound since the United Kingdom voted, in a referendum, to leave the European Union. This event is known as Brexit. This expected the rate of inflation to increase. However, producer prices rose more-than-expected annually. This points to signs that the Sterling Dollar, and its persistent weakness could lead to inflation growing over the months to come.

Inflation could force the Bank of England’s Hand

Over the last several weeks, particularly at their November monetary policy meeting, the Bank of England released its Quarterly Inflation Report. In this report their policy arm, the Monetary Policy Committee (MPC) struck a cautiously hawkish tone in response to a weakened local currency. However, while the central bank could still make a move with interest rates, in either direction, the recent inflation data will dampen their hawkish tone. This could lead to further weakness with the British Pound in the near-term. However, this data did show strong competition with the nations supermarkets is keeping the price of food in check. At least for right now.

In retrospect, today’s miss was not a total surprise. Thanks to a quirk in the economic calendar as well as the methodology used to collect and formulate the inflation number, only served to amplify the base effect for last month. This means, thanks to a weakening Sterling, we could still expect inflation to move higher over the next coming months, exceeding the central bank’s target of two percent before the second half of 2017. This is still a distinct possibility and not out of reach, by any means.

In other news, this morning, BOE Governor Mark Carney spoke. He reiterated that he will leave his post after 2019. In comments to the House of Commons Treasury Committee, he said that blaming monetary policy for inequality is nothing but a “massive blame-detection exercise.” His comments did little to effect the Pound this morning as investors were more interested in the inflation number as it gave more guidance into the direction of monetary policy.

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UK Inflation Comes in Unexpectedly Lower

UK Inflation Comes in Unexpectedly Lower
by, David Frank, Economist

Points to consider in this Forex article:

• UK inflation eases to 0.9 percent in October. This is down from one percent in September and below the forecast.
• British Pound weakens against the US Dollar.

This morning, the United Kingdom released its headline inflation for the month of October. The consumer price index (CPI) came in at 0.9 percent. This is below the one percent reported in September. Analysts and economists expected an annual print of 1.1 percent. As a result, the British Pound moved lower, for the second day in a row, against the US Dollar as hopes for a rate cut from the Bank of England (BOE) are being kept alive. This will weaken the British Pound even further.

The official numbers, which include the reduction in the core rate of inflation came in a t 1.2 percent down from 1.5 percent and below the 1.4 percent increase predicted by economists. This came despite the recent decline in the value of the Sterling Pound since the United Kingdom voted, in a referendum, to leave the European Union. This event is known as Brexit. This expected the rate of inflation to increase. However, producer prices rose more-than-expected annually. This points to signs that the Sterling Dollar, and its persistent weakness could lead to inflation growing over the months to come.

Inflation could force the Bank of England’s Hand

Over the last several weeks, particularly at their November monetary policy meeting, the Bank of England released its Quarterly Inflation Report. In this report their policy arm, the Monetary Policy Committee (MPC) struck a cautiously hawkish tone in response to a weakened local currency. However, while the central bank could still make a move with interest rates, in either direction, the recent inflation data will dampen their hawkish tone. This could lead to further weakness with the British Pound in the near-term. However, this data did show strong competition with the nations supermarkets is keeping the price of food in check. At least for right now.

In retrospect, today’s miss was not a total surprise. Thanks to a quirk in the economic calendar as well as the methodology used to collect and formulate the inflation number, only served to amplify the base effect for last month. This means, thanks to a weakening Sterling, we could still expect inflation to move higher over the next coming months, exceeding the central bank’s target of two percent before the second half of 2017. This is still a distinct possibility and not out of reach, by any means.

In other news, this morning, BOE Governor Mark Carney spoke. He reiterated that he will leave his post after 2019. In comments to the House of Commons Treasury Committee, he said that blaming monetary policy for inequality is nothing but a “massive blame-detection exercise.” His comments did little to effect the Pound this morning as investors were more interested in the inflation number as it gave more guidance into the direction of monetary policy.

 

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The Dollar Looks to Fed Chair Yellen

The Dollar Looks to Fed Chair Yellen
by, David Frank, Economist

Points to consider in this Forex article:

• The Japanese yen falls this morning as stocks rise. The Bank of Japan comes up empty in bond-operation.
• The Australian Dollar falls as jobs data comes in weaker-than-expected. The New Zealand Dollar recovers.
• US Dollar could extend rally if Federal Reserve Chair Janet Yellen endorses a steeper rate hike outlook.

This morning, the Japanese yen underperformed against the US Dollar as most stocks on the Japanese headline stock bourse, the Nikkei 225 rose. The Nikkei gapped down at open only to retrace losses to close higher by the end of the trading session. Stocks closed flat at the end of the day. The USD/JPY Forex market paced the advance as Japan’s exporters like a weaker yen. The early selloff might have been due to the Bank of Japan missing the mark and attracting no offer in its first fixed-rate bond buying operation.

The Australian Dollar also moved lower this morning after disappointing labor market data crossed the wires. The economy in the Down Under only added a net of 9,800 jobs in October. Economists had projected a gain of 16,000. Even worse, the September loss was revised to a shockingly large 29,000 jobs lost. The initial net loss came in at 9,800. The Aussie Dollar tracked front-end bond yields lower as the results priced in a more dovish Reserve Bank of Australia monetary policy outlook.

Looking at the New Zealand Dollar, which had been under pressure since massive earthquakes jolted the country last week, recovered this morning. The government announced they were setting aside NZ$ 7.5 million in a business aid package for areas affected by the quakes. The country’s Finance Minister Bill English also announced that the earthquake will have very little impact on the country’s economic growth. The gross domestic product (GDP) will be little affected. Also a parallel increase in US 2 year Treasury bill futures hints at some protective moderation with US monetary policy outlook ahead of Fed Chair Janet Yellen’s speech. This is helping interest rate sensitive currencies like the Kiwi Dollar.

The financial markets have all but priced in the Federal Reserve hiking rates in December. Fed funds futures are implying a 95 percent possibility of them pulling the trigger. This means investors will be very meaningful as they will be glued to any comments or hints as to future trajectory. The Fed is seen as steepening its trajectory of rate hikes in the wake of President elect Donald Trump’s plan to increase fiscal spending and cut taxes. He plans to rebuild and start new infrastructure projects. This has caused a selloff in US Treasuries, pushing up yields and alongside the higher yields, the US Dollar has also soared to a near 13 and a half year high.

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The Dollar Looks to Fed Chair Yellen

The Dollar Looks to Fed Chair Yellen
by, David Frank, Economist

Points to consider in this Forex article:

• The Japanese yen falls this morning as stocks rise. The Bank of Japan comes up empty in bond-operation.
• The Australian Dollar falls as jobs data comes in weaker-than-expected. The New Zealand Dollar recovers.
• US Dollar could extend rally if Federal Reserve Chair Janet Yellen endorses a steeper rate hike outlook.

This morning, the Japanese yen underperformed against the US Dollar as most stocks on the Japanese headline stock bourse, the Nikkei 225 rose. The Nikkei gapped down at open only to retrace losses to close higher by the end of the trading session. Stocks closed flat at the end of the day. The USD/JPY Forex market paced the advance as Japan’s exporters like a weaker yen. The early selloff might have been due to the Bank of Japan missing the mark and attracting no offer in its first fixed-rate bond buying operation.

The Australian Dollar also moved lower this morning after disappointing labor market data crossed the wires. The economy in the Down Under only added a net of 9,800 jobs in October. Economists had projected a gain of 16,000. Even worse, the September loss was revised to a shockingly large 29,000 jobs lost. The initial net loss came in at 9,800. The Aussie Dollar tracked front-end bond yields lower as the results priced in a more dovish Reserve Bank of Australia monetary policy outlook.

Looking at the New Zealand Dollar, which had been under pressure since massive earthquakes jolted the country last week, recovered this morning. The government announced they were setting aside NZ$ 7.5 million in a business aid package for areas affected by the quakes. The country’s Finance Minister Bill English also announced that the earthquake will have very little impact on the country’s economic growth. The gross domestic product (GDP) will be little affected. Also a parallel increase in US 2 year Treasury bill futures hints at some protective moderation with US monetary policy outlook ahead of Fed Chair Janet Yellen’s speech. This is helping interest rate sensitive currencies like the Kiwi Dollar.

The financial markets have all but priced in the Federal Reserve hiking rates in December. Fed funds futures are implying a 95 percent possibility of them pulling the trigger. This means investors will be very meaningful as they will be glued to any comments or hints as to future trajectory. The Fed is seen as steepening its trajectory of rate hikes in the wake of President elect Donald Trump’s plan to increase fiscal spending and cut taxes. He plans to rebuild and start new infrastructure projects. This has caused a selloff in US Treasuries, pushing up yields and alongside the higher yields, the US Dollar has also soared to a near 13 and a half year high.

 

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Europe Coming back into Focus after the US Elections

Europe Coming back into Focus after the US Elections
by, David Frank, Economist

There is a number of data releases this week on the economic calendar that should support the US Federal Reserve (Fed) hiking its benchmark rate in December. There had been some concern that Donald Trump’s stunning win would give the Fed a reason to pause. However the Republican sweep to victory which included the Congress and Senate could mean a significant hike in fiscal stimulus. This should keep the Trump reaction in the financial markets in play this week. US Treasury yields and the US Dollar are moving higher. Elsewhere, in the global markets, the first round of reaction to the Trump victory has taken its course. This means investors can now focus back on Europe and Asian economic news.

Today, markets got their first look at Japanese economic growth. The third quarter gross domestic product (Q3 GDP) came in at 2.9 percent, above forecasts and 0.8 percent quarter on quarter. This was up from last quarter’s growth of 0.7 percent.

Recently the Bank of Japan (BOJ) said that further central bank action would be limited as they need time to assess prior fiscal and monetary efforts to boost growth. The BOJ also said, in its most recent quarterly report, that monetary policy alone would not be enough to meet its target of two percent inflation.

Europe Eyes Brexit and UK Economic Data

Europe is once again noting Brexit fallout returning to the news cycle and its impact is effecting the economy of the United Kingdom (UK). UK consumer price rose one percent in September compared to 0.6 percent August. This is its highest level since November 2014. Inflation is expected to inch higher to 1.1 percent in October as petrol prices rise but food price deflation continues.

The inflation in the UK is expected to rise as the British Pound continues to weaken. The recent UK inflation report highlighted better growth prospects post Brexit but an increase in cost pressure thanks to a weakening Sterling across its major Forex trading partners. The Bank of England (BOE) expects inflation to beat its two percent target by 2017 and to peak at 2.8 percent in early 2018.

The next inflation data out of the UK is due this Tuesday. It is expected to come in higher thus supporting the British Pound. BOE Governor Mark Carney said there are limits to which inflation will be tolerated. In effect, the selloff in the Sterling has limited what the BOE can do to assist the British economy.

Also, on Tuesday, there is some key European data set to be released. The Eurozone is getting ready to release its Q3 GDP number. Economic growth is expected to show a quarterly growth confirmed at 0.3 percent for the third quarter. The yearly number is expected to come in at 1.6 percent. Prior to the Eurozone release, Germany will release its Q3 GDP data, expected to rise at 0.4 percent quarterly. Economic growth for Italy, on a quarterly basis, is expected to come in flat.

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Europe Coming back into Focus after the US Elections

Europe Coming back into Focus after the US Elections
by, David Frank, Economist

There is a number of data releases this week on the economic calendar that should support the US Federal Reserve (Fed) hiking its benchmark rate in December. There had been some concern that Donald Trump’s stunning win would give the Fed a reason to pause. However the Republican sweep to victory which included the Congress and Senate could mean a significant hike in fiscal stimulus. This should keep the Trump reaction in the financial markets in play this week. US Treasury yields and the US Dollar are moving higher. Elsewhere, in the global markets, the first round of reaction to the Trump victory has taken its course. This means investors can now focus back on Europe and Asian economic news.

Today, markets got their first look at Japanese economic growth. The third quarter gross domestic product (Q3 GDP) came in at 2.9 percent, above forecasts and 0.8 percent quarter on quarter. This was up from last quarter’s growth of 0.7 percent.

Recently the Bank of Japan (BOJ) said that further central bank action would be limited as they need time to assess prior fiscal and monetary efforts to boost growth. The BOJ also said, in its most recent quarterly report, that monetary policy alone would not be enough to meet its target of two percent inflation.

Europe Eyes Brexit and UK Economic Data

Europe is once again noting Brexit fallout returning to the news cycle and its impact is effecting the economy of the United Kingdom (UK). UK consumer price rose one percent in September compared to 0.6 percent August. This is its highest level since November 2014. Inflation is expected to inch higher to 1.1 percent in October as petrol prices rise but food price deflation continues.

The inflation in the UK is expected to rise as the British Pound continues to weaken. The recent UK inflation report highlighted better growth prospects post Brexit but an increase in cost pressure thanks to a weakening Sterling across its major Forex trading partners. The Bank of England (BOE) expects inflation to beat its two percent target by 2017 and to peak at 2.8 percent in early 2018.

The next inflation data out of the UK is due this Tuesday. It is expected to come in higher thus supporting the British Pound. BOE Governor Mark Carney said there are limits to which inflation will be tolerated. In effect, the selloff in the Sterling has limited what the BOE can do to assist the British economy.

Also, on Tuesday, there is some key European data set to be released. The Eurozone is getting ready to release its Q3 GDP number. Economic growth is expected to show a quarterly growth confirmed at 0.3 percent for the third quarter. The yearly number is expected to come in at 1.6 percent. Prior to the Eurozone release, Germany will release its Q3 GDP data, expected to rise at 0.4 percent quarterly. Economic growth for Italy, on a quarterly basis, is expected to come in flat.

 

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Financial Markets upbeat after US Elections… but…

Financial Markets upbeat after US Elections… but…
by, David Frank, Economist

The global financial markets continue to digest the aftermath of Republican president-elect Donald Trump’s decisive win over Democrat rival Hillary Clinton. There was an exciting and action packed 24 hours that marked wild market swings across the spectrum of asset classes. At first, the US Dollar corrected lower, on Wednesday, after news broke Trump was going to win, against all its major trading partners during a tumultuous trading day, only to correct higher Wednesday afternoon and today. This fall lower came thanks to uncertainty, with the Federal Reserve (Fed), following through with a rate hike in December, thanks to Trump’s win. These fears have subsided with over 80 percent of economists and analysts betting on a hike.

This morning, the New Zealand Dollar was the weakest performing currency. The Reserve Bank of New Zealand (RBNZ) cut its main cash rate to 1.75 percent but it’s accompany policy statement played down the need for more rate cuts. This gave the Kiwi Dollar some support and it recovered. Sellers then came back in full force after RBNZ Governor Wheeler said that his bank’s policy maker’s “always have an open mind on FX intervention.” The Australian Dollar also performed better after underperforming yesterday. The sentiment linked currencies had a better day today.

There is a quiet economic calendar in the European and US hours which means the US election outcome will continue to dominate the spotlight. Futures for the S&P 500 are pointing to a solidly higher open today as well as the other major US indices. During Asian hours, the risk-on mood that took hold yesterday afternoon got a nice shot in the arm as the Asian markets were, on the average, five percent higher this morning with the Nikkei 225 rallying over seven percent as the Japanese yen weakened against the US Dollar. Investors are taking an approach that Donald Trump’s bark is louder than his bite.

As the elections went on, sentiment crumbled pushing the global markets lower and at one point stops were activated on the US markets as futures crashed. However, investors got to see a more conciliatory Trump in his victory speech and investors changed their sentiment and risk appetite. His speech showed a path to boost fiscal outlays on a large-scale in and effort of “economic renewal.” These remarks inspired an appetite for bargain-hunting after a day of deep intraday losses. The buyers came out and that sentiment has carried forward into today’s global trading sessions.

Trump is focused on infrastructure projects that will show a demand for materials. This in turn boosted material and industrial plays in the US market. Financial and healthcare stocks also were big winners yesterday as investors priced out a stricter regulatory regime they had priced in for a Clinton White House.

This reallocation of portfolios, inspired by a Trump victory, might not be all good news and a future problem for risk appetite. He has pledged to label China as a manipulator of currencies and withdraw from some of the free trade agreements. He has also pledged to renegotiate other trade agreements. This will begin to worry the financial markets at some point and dampen sentiment. A ramp up of trade barriers will cause a rise in import prices and hurt consumption which is the largest contributor to the United States’ gross domestic product (GDP). This could hurt corporate earnings in related sectors and then the growth in the nation’s GDP as a whole.

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Financial Markets upbeat after US Elections… but…

Financial Markets upbeat after US Elections… but…
by, David Frank, Economist

The global financial markets continue to digest the aftermath of Republican president-elect Donald Trump’s decisive win over Democrat rival Hillary Clinton. There was an exciting and action packed 24 hours that marked wild market swings across the spectrum of asset classes. At first, the US Dollar corrected lower, on Wednesday, after news broke Trump was going to win, against all its major trading partners during a tumultuous trading day, only to correct higher Wednesday afternoon and today. This fall lower came thanks to uncertainty, with the Federal Reserve (Fed), following through with a rate hike in December, thanks to Trump’s win. These fears have subsided with over 80 percent of economists and analysts betting on a hike.

This morning, the New Zealand Dollar was the weakest performing currency. The Reserve Bank of New Zealand (RBNZ) cut its main cash rate to 1.75 percent but it’s accompany policy statement played down the need for more rate cuts. This gave the Kiwi Dollar some support and it recovered. Sellers then came back in full force after RBNZ Governor Wheeler said that his bank’s policy maker’s “always have an open mind on FX intervention.” The Australian Dollar also performed better after underperforming yesterday. The sentiment linked currencies had a better day today.

There is a quiet economic calendar in the European and US hours which means the US election outcome will continue to dominate the spotlight. Futures for the S&P 500 are pointing to a solidly higher open today as well as the other major US indices. During Asian hours, the risk-on mood that took hold yesterday afternoon got a nice shot in the arm as the Asian markets were, on the average, five percent higher this morning with the Nikkei 225 rallying over seven percent as the Japanese yen weakened against the US Dollar. Investors are taking an approach that Donald Trump’s bark is louder than his bite.

As the elections went on, sentiment crumbled pushing the global markets lower and at one point stops were activated on the US markets as futures crashed. However, investors got to see a more conciliatory Trump in his victory speech and investors changed their sentiment and risk appetite. His speech showed a path to boost fiscal outlays on a large-scale in and effort of “economic renewal.” These remarks inspired an appetite for bargain-hunting after a day of deep intraday losses. The buyers came out and that sentiment has carried forward into today’s global trading sessions.

Trump is focused on infrastructure projects that will show a demand for materials. This in turn boosted material and industrial plays in the US market. Financial and healthcare stocks also were big winners yesterday as investors priced out a stricter regulatory regime they had priced in for a Clinton White House.

This reallocation of portfolios, inspired by a Trump victory, might not be all good news and a future problem for risk appetite. He has pledged to label China as a manipulator of currencies and withdraw from some of the free trade agreements. He has also pledged to renegotiate other trade agreements. This will begin to worry the financial markets at some point and dampen sentiment. A ramp up of trade barriers will cause a rise in import prices and hurt consumption which is the largest contributor to the United States’ gross domestic product (GDP). This could hurt corporate earnings in related sectors and then the growth in the nation’s GDP as a whole.

 

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Dollar is mixed as Trump Wins the Presidency

Dollar is mixed as Trump Wins the Presidency
by, David Frank, Economist

The financial markets are reeling from the results of the United States Presidential election. Republican Presidential nominee Donald Trump is now President-elect and will be the 45^th president of the United States. Donald Trump has one 288 electoral college votes guaranteeing his victory. NBC News has just reported that Democratic nominee Hillary Rodham Clinton has called to concede. She had refused to do so earlier, but the math convinced her victory was hopeless.

This morning the anti-risk Japanese yen soared higher against all its major counterparts. The yen is considered a safe haven currency, especially in the Pacific Rim and Asian region. The yen is now poised to see its largest one day gain since the June 24 rally inspired by the United Kingdom voting to leave the European Union, Brexit. Sentiment linked currency like the Australian Dollar, the New Zealand Dollar and the Canadian Dollar are all under heavy selling pressure today. Global equity markets are also under heavy selling pressure as risk appetite crumbles around the globe. Stocks plunged, on an average of five percent, around the Asian and Pacific Rim this morning and European markets are poised to open significantly lower. The Dow Jones is poised to open 800 points lower in the United States at market open and the Nasdaq Composite and the S&P 500 are pointing to greater than five percent lower at open. Stops have been put in place by the CME which means these markets cannot open lower until 9:30 am EST time. Risk appetite is crumbling around the world and across the breath of the financial markets.

As of right now the US Dollar is putting in a mixed performance. Prices deferred to trends in sentiment when compared to currencies at both ends of the risk on or off spectrum. The Dollar is rising against commodity bloc currencies and falling against the yen. There are policy plays elsewhere in play. The US Dollar is falling against the euro and the British Pound right now as there is an increasingly remote chance the Federal Reserve will raise rates in December. This is undermining its appeal to stalled policies with the European Central Bank and the Bank of England which are at standstills.

Fallout from this heated presidential election in the United States will overwhelm other considerations and calendar events throughout the day. As we have said, previously, Clinton represented the status quo candidate. This gave the markets hope of continuity and predictability which investors like. Trump is more of an unknown. His comments on immigration, trade deal reform and other business related comments does not sit well with economists or investors across the spectrum. Whether or not this turbulence will last will depend who he announces as cabinet members and policy advisers. Only time will tell.

 

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Dollar is mixed as Trump Wins the Presidency

Dollar is mixed as Trump Wins the Presidency
by, David Frank, Economist

The financial markets are reeling from the results of the United States Presidential election. Republican Presidential nominee Donald Trump is now President-elect and will be the 45^th president of the United States. Donald Trump has one 288 electoral college votes guaranteeing his victory. NBC News has just reported that Democratic nominee Hillary Rodham Clinton has called to concede. She had refused to do so earlier, but the math convinced her victory was hopeless.

This morning the anti-risk Japanese yen soared higher against all its major counterparts. The yen is considered a safe haven currency, especially in the Pacific Rim and Asian region. The yen is now poised to see its largest one day gain since the June 24 rally inspired by the United Kingdom voting to leave the European Union, Brexit. Sentiment linked currency like the Australian Dollar, the New Zealand Dollar and the Canadian Dollar are all under heavy selling pressure today. Global equity markets are also under heavy selling pressure as risk appetite crumbles around the globe. Stocks plunged, on an average of five percent, around the Asian and Pacific Rim this morning and European markets are poised to open significantly lower. The Dow Jones is poised to open 800 points lower in the United States at market open and the Nasdaq Composite and the S&P 500 are pointing to greater than five percent lower at open. Stops have been put in place by the CME which means these markets cannot open lower until 9:30 am EST time. Risk appetite is crumbling around the world and across the breath of the financial markets.

As of right now the US Dollar is putting in a mixed performance. Prices deferred to trends in sentiment when compared to currencies at both ends of the risk on or off spectrum. The Dollar is rising against commodity bloc currencies and falling against the yen. There are policy plays elsewhere in play. The US Dollar is falling against the euro and the British Pound right now as there is an increasingly remote chance the Federal Reserve will raise rates in December. This is undermining its appeal to stalled policies with the European Central Bank and the Bank of England which are at standstills.

Fallout from this heated presidential election in the United States will overwhelm other considerations and calendar events throughout the day. As we have said, previously, Clinton represented the status quo candidate. This gave the markets hope of continuity and predictability which investors like. Trump is more of an unknown. His comments on immigration, trade deal reform and other business related comments does not sit well with economists or investors across the spectrum. Whether or not this turbulence will last will depend who he announces as cabinet members and policy advisers. Only time will tell.

 

 

 

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Clinton vs. Trump will Shape Worldwide Market Sentiment

Clinton vs. Trump will Shape Worldwide Market Sentiment
by, David Frank, Economist

Points to consider in this Forex article:

• Commodity prices and Forex universe moves lower, yen gains as it retraces yesterday’s losses.
• Quiet consolidation across the global financial markets as US elections get underway.
• There is a Hillary Clinton vs Donald Trump dichotomy reflected in risk on or risk off dynamics.

The one thing for sure this morning is that all eyes are on the United States as the world’s largest economy, and leader of the free world, takes to the polls to decide who will sit in the White House after Barack Obama leaves. This election season has been the most divisive and heated election witnessed by the United States in its history and has literally divided a nation. The Democratic nominee Hilary Clinton, is perceived as the status quo candidate by global financial markets. As long as the markets see her as winning, investors will be happy. The Republican nominee Donald Trump, with his immigration and divisive trade policies is seen as the wildcard. Needless to say, by tomorrow in the early hours of GMT time, we should have a victor and know who will be the next President of the United States.

This morning, the Australian Dollar, Canadian Dollar and New Zealand Dollar all pulled back. The Japanese yen surged higher in moves that looked corrective after yesterday’s trading session. In the commodity bloc, those Forex currencies outperformed while the anti-risk Japanese yen plunged. Those markets cheered a recent decision by the Federal Bureau of Investigation (FBI) not to pursue further criminal charges against Hillary Clinton over her use of a private email server during the time she served as secretary of state. They will not change their July decision which said while showing a lack of judgement she was not criminally negligible.

Financial markets dislike uncertainty. They like stability and the status quo. Polls are showing Clinton should win with the Congress remaining Republican and he Senate turning over to the Democrats. Hence, the status quo. The former New York Senator, former First lady and secretary state is the perceived as the status quo candidate. Investors are more comfortable betting on her direction of US policy as well as the allocation of assets if she is in the White House.

Her opponent, Republican candidate Donald Trump is anything but conventional. Therefor pricing in event risk if he should win is trickier. Keeping that in mind, it makes sense for traders to risk exposure to more speculative asset classes as the polls narrow, thanks to the FBI probe into Clinton renewed last week. Voters have trust issues with Clinton and her victory is not one hundred percent guaranteed. Polls did not reverse course after the FBI announced that they were ending their investigation. At least not enough for uncertainty and volatility to subside.

These price fluctuations underscore a tense market that is extremely sensitive to a US presidential outcome. Especially as voters head to the polls and all eyes will be watching exit outcomes. There is a batch of second-tier economic data out of Europe today as well as some Federal Reserve speakers that will fade into background noise. Traders and the world are now waiting for the outcome of today’s US Presidential outcome. No matter who wins, directional bias is likely to be muddied for the next several days as volatility will persist.

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Clinton vs. Trump will Shape Worldwide Market Sentiment

Clinton vs. Trump will Shape Worldwide Market Sentiment
by, David Frank, Economist

Points to consider in this Forex article:

• Commodity prices and Forex universe moves lower, yen gains as it retraces yesterday’s losses.
• Quiet consolidation across the global financial markets as US elections get underway.
• There is a Hillary Clinton vs Donald Trump dichotomy reflected in risk on or risk off dynamics.

The one thing for sure this morning is that all eyes are on the United States as the world’s largest economy, and leader of the free world, takes to the polls to decide who will sit in the White House after Barack Obama leaves. This election season has been the most divisive and heated election witnessed by the United States in its history and has literally divided a nation. The Democratic nominee Hilary Clinton, is perceived as the status quo candidate by global financial markets. As long as the markets see her as winning, investors will be happy. The Republican nominee Donald Trump, with his immigration and divisive trade policies is seen as the wildcard. Needless to say, by tomorrow in the early hours of GMT time, we should have a victor and know who will be the next President of the United States.

This morning, the Australian Dollar, Canadian Dollar and New Zealand Dollar all pulled back. The Japanese yen surged higher in moves that looked corrective after yesterday’s trading session. In the commodity bloc, those Forex currencies outperformed while the anti-risk Japanese yen plunged. Those markets cheered a recent decision by the Federal Bureau of Investigation (FBI) not to pursue further criminal charges against Hillary Clinton over her use of a private email server during the time she served as secretary of state. They will not change their July decision which said while showing a lack of judgement she was not criminally negligible.

Financial markets dislike uncertainty. They like stability and the status quo. Polls are showing Clinton should win with the Congress remaining Republican and he Senate turning over to the Democrats. Hence, the status quo. The former New York Senator, former First lady and secretary state is the perceived as the status quo candidate. Investors are more comfortable betting on her direction of US policy as well as the allocation of assets if she is in the White House.

Her opponent, Republican candidate Donald Trump is anything but conventional. Therefor pricing in event risk if he should win is trickier. Keeping that in mind, it makes sense for traders to risk exposure to more speculative asset classes as the polls narrow, thanks to the FBI probe into Clinton renewed last week. Voters have trust issues with Clinton and her victory is not one hundred percent guaranteed. Polls did not reverse course after the FBI announced that they were ending their investigation. At least not enough for uncertainty and volatility to subside.

These price fluctuations underscore a tense market that is extremely sensitive to a US presidential outcome. Especially as voters head to the polls and all eyes will be watching exit outcomes. There is a batch of second-tier economic data out of Europe today as well as some Federal Reserve speakers that will fade into background noise. Traders and the world are now waiting for the outcome of today’s US Presidential outcome. No matter who wins, directional bias is likely to be muddied for the next several days as volatility will persist.

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You should sell before the Elections and here is Why

You should sell before the Elections and here is Why
by, David Frank, Economist

The US stock markets are very overinflated right now. Both of the candidates to sit in the White House, Hilary Rodham Clinton (D) or Donald Trump (R) provide and number of real dangers and a viable catalyst for a selloff if either wins.

If you decide to wait, as you are unsure as to what to do right now, then you should sell after the election concludes Wednesday at midnight. There could be, at the very least, a 25 percent drawdown in the US equity markets out of the gates the day after.

Let’s talk about the possible Clinton administration first and the perils it will face off the bat. There will be non-stop criminal investigations into her emails as well as a constant stream of bad information from WikiLeaks. This will lead to a divided House and Congress which will be a virtual killing field for any of her policies. She will enter the White House, battered and bruised and lacking in legitimacy to accomplish anything on her agenda.

There will be a lot of acrimony should she win, not only from the citizenry but other politicians, and this could last up till one year causing instant paralysis. There will be any number of house committees doing investigations from WikiLeaks data to her misuse of an email server. This would plague the early days of her administration, should she win. This means a stalled Federal Reserve on its decision making into fiscal policy which could lead the country into a new recession.

The Internal Revenue Service (IRS) said consumer revenue was up a mere one percent last year and last quarter, was down four percent. In the five months since May, payroll withholding was barely keeping up with wage inflation. This means work hours are not happening. From here this could paralyze congress as the debt ceiling is about to expire again. There is a central bank that is already dragging its heels on fiscal policy. The United States equity markets that have been pretty flat for over 600 days. This is a recipe for a crisis. We are in the same place, now, that the markets were in in December 2014. There is a lot of risk so what is the reward?

The S&P 500 has gained maybe a little over one percent in two years and the Down Jones Industrial Average (DJIA) is up around 0.70 percent. That is anemic.

Should Donald Trump, win then there will open partisan warfare. An administration renegotiating trade deals, NAFTA, closing down immigration, putting an America first isolationist policy on the table. A total disaster. If Trump wins, then all bets are off and the markets are going to see turmoil.

If Trump wins, we can liken his victory the San Francisco Earthquake of 1906 because that will be the effect on the stock markets and the nation’s already anemic economic recovery.

It might be a good time to sit on cash and gold. At least for the next six months to one year as equities are going to take a beating. No matter who wins the race for the White House and sits in the Oval Office, there is going to be a bumpy ride for stocks, bonds and least, but not last, the Forex markets as investors flee to safe haven assets.

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You should sell before the Elections and here is Why

You should sell before the Elections and here is Why
by, David Frank, Economist

The US stock markets are very overinflated right now. Both of the candidates to sit in the White House, Hilary Rodham Clinton (D) or Donald Trump ® provide and number of real dangers and a viable catalyst for a selloff if either wins.

If you decide to wait, as you are unsure as to what to do right now, then you should sell after the election concludes Wednesday at midnight. There could be, at the very least, a 25 percent drawdown in the US equity markets out of the gates the day after.

Let’s talk about the possible Clinton administration first and the perils it will face off the bat. There will be non-stop criminal investigations into her emails as well as a constant stream of bad information from WikiLeaks. This will lead to a divided House and Congress which will be a virtual killing field for any of her policies. She will enter the White House, battered and bruised and lacking in legitimacy to accomplish anything on her agenda.

There will be a lot of acrimony should she win, not only from the citizenry but other politicians, and this could last up till one year causing instant paralysis. There will be any number of house committees doing investigations from WikiLeaks data to her misuse of an email server. This would plague the early days of her administration, should she win. This means a stalled Federal Reserve on its decision making into fiscal policy which could lead the country into a new recession.

The Internal Revenue Service (IRS) said consumer revenue was up a mere one percent last year and last quarter, was down four percent. In the five months since May, payroll withholding was barely keeping up with wage inflation. This means work hours are not happening. From here this could paralyze congress as the debt ceiling is about to expire again. There is a central bank that is already dragging its heels on fiscal policy. The United States equity markets that have been pretty flat for over 600 days. This is a recipe for a crisis. We are in the same place, now, that the markets were in in December 2014. There is a lot of risk so what is the reward?

The S&P 500 has gained maybe a little over one percent in two years and the Down Jones Industrial Average (DJIA) is up around 0.70 percent. That is anemic.

Should Donald Trump, win then there will open partisan warfare. An administration renegotiating trade deals, NAFTA, closing down immigration, putting an America first isolationist policy on the table. A total disaster. If Trump wins, then all bets are off and the markets are going to see turmoil.

If Trump wins, we can liken his victory the San Francisco Earthquake of 1906 because that will be the effect on the stock markets and the nation’s already anemic economic recovery.

It might be a good time to sit on cash and gold. At least for the next six months to one year as equities are going to take a beating. No matter who wins the race for the White House and sits in the Oval Office, there is going to be a bumpy ride for stocks, bonds and least, but not last, the Forex markets as investors flee to safe haven assets.

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The BoE to Highlight Brexit Inflation Today

The BoE to Highlight Brexit Inflation Today
by, David Frank, Economist, Bullish University

The Bank of England (BoE) is holding its monetary policy meeting today and is expected to stand pat on policy but reveal new economic forecasts. They will show the country will overshoot the bank’s two percent target with inflation.

This could put a squeeze on living standards over British families over the coming years. Some economists, are even warning of higher-than-expected inflation that could force the BoE to raise rates as soon as 2017. This would be a major blow for borrowers as well as the broader economy, in general.

The latest consumer price index (CPI) came in at one percent for September. This is half of the target rate but the British Pound has fallen twenty percent against the US Dollar since the United Kingdom voted to leave the European Union on June 23, in a referendum called the Brexit. This is likely to cause a major rise in the cost of many goods and services in the CPI basket over the next coming months.

There is a solid chance that the bank will have to raise its target inflation rate to the highest level in recorded history, since it began forecasting the CPI over a decade ago. The new projected number could be around 2.2 to 2.4 percent in 2017. This is up from the 1.9 projected in August. Inflation forecast for 2018 should rise to around 2.6 percent, up from the forecast of 2.3 percent in August. However, these numbers could come in even higher.

There is data coming out from the National Institute of Economic and Social Research that shows the inflation could jump closer to four percent by the second half of 2017. This is the highest level since 2011. Economists at HSBC feel the inflation number could be closer to 3.7 percent. In either case, this is a drastic increase over the central bank’s two percent target.

Historically, inflation has usually come in higher than the BoE targeted. In 2011 inflation came in at 5.2 percent. This was due to soaring oil prices. However, it is often unusual for a central bank to over shoot its two or three year forecast as it implies the central bank should be taking more of a corrective stance to bring inflation back to its target.

Bank of England Governor Mark Carney, said this week he would stay on until 2019 to help the prime minister negotiate a divorce from the EU said his bank is likely to “tolerate a bit of an overshoot” of its inflation target. This means the BoE should stand pat on interest for the time being and not rush to adjust policy. Adopting a wait and see style, for now.

However, last week, Carney told the House of Lords Economic Affairs Committee “there are limits to the MPC’s willingness to look though an overshoot of inflation” and added that “we are not indifferent to the level of the exchange rate.” This means they could tighten monetary policy should the British Pound continue to slide against the US Dollar.

 

The BoE in its August Inflation Report, had forecasted economic growth in the third quarter to grow at 0.1 percent. The Monetary Policy Committee had also indicated a rate cut of 25 basis points if the economy continues to slow.

It would seem there are many factors on the mind of the Bank of England, and it is very hard to predict the future of their monetary policy for now.

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The BoE to Highlight Brexit Inflation Today

The BoE to Highlight Brexit Inflation Today
by, David Frank, Economist, Bullish University

The Bank of England (BoE) is holding its monetary policy meeting today and is expected to stand pat on policy but reveal new economic forecasts. They will show the country will overshoot the bank’s two percent target with inflation.

This could put a squeeze on living standards over British families over the coming years. Some economists, are even warning of higher-than-expected inflation that could force the BoE to raise rates as soon as 2017. This would be a major blow for borrowers as well as the broader economy, in general.

The latest consumer price index (CPI) came in at one percent for September. This is half of the target rate but the British Pound has fallen twenty percent against the US Dollar since the United Kingdom voted to leave the European Union on June 23, in a referendum called the Brexit. This is likely to cause a major rise in the cost of many goods and services in the CPI basket over the next coming months.

There is a solid chance that the bank will have to raise its target inflation rate to the highest level in recorded history, since it began forecasting the CPI over a decade ago. The new projected number could be around 2.2 to 2.4 percent in 2017. This is up from the 1.9 projected in August. Inflation forecast for 2018 should rise to around 2.6 percent, up from the forecast of 2.3 percent in August. However, these numbers could come in even higher.

There is data coming out from the National Institute of Economic and Social Research that shows the inflation could jump closer to four percent by the second half of 2017. This is the highest level since 2011. Economists at HSBC feel the inflation number could be closer to 3.7 percent. In either case, this is a drastic increase over the central bank’s two percent target.

Historically, inflation has usually come in higher than the BoE targeted. In 2011 inflation came in at 5.2 percent. This was due to soaring oil prices. However, it is often unusual for a central bank to over shoot its two or three year forecast as it implies the central bank should be taking more of a corrective stance to bring inflation back to its target.

Bank of England Governor Mark Carney, said this week he would stay on until 2019 to help the prime minister negotiate a divorce from the EU said his bank is likely to “tolerate a bit of an overshoot” of its inflation target. This means the BoE should stand pat on interest for the time being and not rush to adjust policy. Adopting a wait and see style, for now.

However, last week, Carney told the House of Lords Economic Affairs Committee “there are limits to the MPC’s willingness to look though an overshoot of inflation” and added that “we are not indifferent to the level of the exchange rate.” This means they could tighten monetary policy should the British Pound continue to slide against the US Dollar.

The BoE in its August Inflation Report, had forecasted economic growth in the third quarter to grow at 0.1 percent. The Monetary Policy Committee had also indicated a rate cut of 25 basis points if the economy continues to slow.

It would seem there are many factors on the mind of the Bank of England, and it is very hard to predict the future of their monetary policy for now.

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FOMC could boost the Dollar and Elections Spook the Markets

FOMC could boost the Dollar and Elections Spook the Markets
by, Staff, Bullish University

The Forex markets are likely to ignore a quiet European trading session and calendar only to focus on today’s Federal Reserve rate decision due out later this afternoon in the US trading session. A change in monetary policy looks unlikely this month, but investors will be looking to the post decision remarks by Chair Janet Yellen to see if a rate hike is on tap for December.

As it stands right now, there is a 7 in 10 chance they Federal Reserve will hike rates 25 basis points in December. This matches the past Fed rhetoric and should boost the US Dollar today which fell, yesterday, on election news out of the United States.

This morning, the anti-risk yen outperformed while the sentiment linked currencies, the Australian and Canadian Dollars moved lower on risk appetite. Regional shares, in the Asian and Pacific Rim moved lower by better than one percent. The New Zealand Dollar bucked the downtrend and moved higher on a solid labor market report.

Not since the Brexit vote in June have markets held this sense of wariness when it comes to important political votes. In less than one week, the United States will elect a new president in what has been an extremely contentious election between two very unlikable candidates. There has never been anything like this in recent history. There is a lot of anxiety surrounding this event and financial markets are reacting to any news. The previous session saw a selloff in assets after polls showed that Donald Trump was now in the lead, according to recent polling data.

Historically speaking, November is usually a good month for the S&P 500 as there is little volume and volatility. However, during election years, those statistics change. The CBOE VIX or “fear index,” has risen 6 days in a row and spiked up 10 percent yesterday. This moved the equity markets lower in the United States and this sentiment spilled over to Europe and into Asia this morning. In weeks that follow an election, there tends to be a consistency with uncertainty that leads to cool times, as volatility drops and markets return to normal trading patterns. However, sentiment usually does not follow into the equity markets, for the 12 months after an election, a University of Michigan sentiment survey shows a slide in stock prices.

In this particular election, or cycle, conditions are so different and inflamed, that traders should not rely on historical statistics. Especially when there is clear sentiment that one candidate can be potentially devastating to the economy. In this case it does not matter which party this candidate sits in. Right now, there is only fear and dissatisfaction for one half of the United States, regardless who wins. This is even worse for markets as we can see a more conviction less market trading consolidation emerge and the main stock bourses are all richly priced. Price action has yet to slip lower but this election could be the true contender for that spark that ignites the next market correction lower.

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Clinton’s New Email Scandal weighs on US Stocks

Clinton’s New Email Scandal weighs on US Stocks
by, David Frank, Economist, Bullish University

Election angst as returned to Wall Street as yet another scandal is rocking the campaign of the Democratic Candidate for US President, Hillary Rodham Clinton. Elections are now one week away and the price in the markets did for a Clinton victory is eroding as polls are once again neck to neck.

Stocks held up nicely after the United States reported better-than-expected gross domestic product (GDP) growth for last quarter. The economy accelerated to its fastest pace in nearly two years. However, FBI Director James Comey and his announcement of a warrant obtained to look into a new batch of Clinton emails has rocked consumer confidence and brought back hopes of a Donald Trump campaign. This new look into her email server comes after a separate investigation into disgraced New York Congressman Gary Wiener brought new possible evidence to light.

There is now a chance of either a Clinton victory, which could lead to her immediate resignation, if she wins, or a victory for the wild card Donald Trump. A lose, lose situation for the US stock markets in the near term. US voters will enter the polls on November 8 to elect a president in a race that is all but undecided.

The Dow Jones which was up nearly 90 points before the news broke, closed down nearly nine points. All three major indices snapped a three month winning streak, as October came to a close yesterday. The indices were breakeven at close. Weighing on the markets this week will be the Federal Reserve interest rate decision as well as the October job report due out on Friday. There is also the release of the Fed’s favorite barometer of inflation, the PCE Inflator number.

On Friday, Comey sent a letter to lawmakers informing them that the FBI would review additional Clinton emails that turned up in the Wiener investigation. He stated that this “unrelated case” would attempt “to determine whether they contain classified information.” He also said that his agency “cannot asses” the new emails, at this time, to determine their “significance.” This will be a cloud over Clinton for quite some time as the FBI cannot tell how long their investigation will take.

US stock markets are now repricing election risk in light of this new email scandal against Clinton which has caused national polls to narrow significantly. Her win is not guaranteed. This is irking investors. Donald Trump, the Republican nominee, is view more skeptically by Wall Street because of his America First policy that could spark a number of trade wars which will hurt economic growth as well as the stock markets. Clinton, despite her calls to tax the wealthy and regulate business more is view more as the status quo candidate and markets like stability.

The markets are underpricing the possible chance of a Trump victory. This is a major market risk this political season. The other risk being a Democratic sweep of the White House and both chambers of Congress which will give that party a full mandate. Wall Street does like political standoffs as much as stability.

This re-emergence of Clinton’s email scandal will raise new questions about whether or not voters feel she is capable of sitting in the White House. Anything that calls into question a Clinton victory will lead to fresh market volatility. This volatility will abate as more information becomes known. As far as investors and The Street is concerned November 8 cannot come fast enough.

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